The Role of Investors in Promoting a Just Transition

Wim Van Hyfte, PhD, Global head of Responsible Investments and Research at Candriam, was one of the three speakers on Climate Action's webinar, The Role of Investors in Promoting a Just Energy Transition. Selected excerpts of the event that gathered over 650 participants, ahead of the Paris Sustainable Investment Forum Europe.

Climate Action is more than Environmental investing

ESG is not only about the E, or environmental part; as the previous speaker mentioned, the importance of integrating that Social dimension is absolutely key. Climate change represents a potentially irreversible threat not only to societies but also to our global economy. What is often forgotten and what I would like to stress as an investor is that they are intertwined so we need to consider both when we allocate our capital.

The Challenge

Before speaking about a just energy transition, remember what it means. The repercussions of a two-degree, or 1.5-degree, alignment for our economy reach beyond the obvious sectors of energy and power, to industry, transport, buildings, food and agriculture. In the end we need a really fundamental change in our economic model, and also a really fundamental change in our consumer spending behaviour.

That fundamental change obviously presents risks, but also offers enormous opportunities -- in which technology and innovation are key. Asset managers, and asset owners, have the responsibility to help guide that process and to incorporate all the impacted stakeholders. Candriam has been incorporating not only the climate, and the environment, but also the social dimension of the implication of energy transition into the investment process.

The Changes

It's not only investors who are responsible. The most realistic path to address climate change is one of a smooth transition to that net zero carbon economy for that societal impact. Companies obviously do not operate in a vacuum. A few years ago companies may have been focused on shareholder value, with the governance is more seen as a restrictive factor and broader society not even considered. What we are seeing now is that both investors and companies realize that they need to consider the societal and environmental externalities of their activities. We are all part of a bigger ecosystem. Governments also have their role to play.

The impact is often viewed with too negative an approach. More and more what we are seeing is a positive impact. Thanks to energy transition, there is a lot of innovation, and a lot of new job creation. We see a really different way of doing business, taking into account all stakeholders in a more responsible way, including future generations.

Last year Candriam announced they would largely divest from coal exposure, precisely because phasing out coal is an absolute requirement from a climate change perspective. Most importantly, there are better, cheaper alternatives which can be implemented on the same scale. This does have an impact on some industries, and on some local communities and employment. Agreed, we need to balance the social impact against the environmental impact, but we need to look at the facts and figures.

Energy transition has created enormous opportunities in job creation, innovation, and I strongly believe we will continue to benefit from these trends.

Balance the Social Impact – But also Examine the Figures

A 'Just Transition' requires a balance between the jobs at stake, and the impact of the status quo.

We are already at the tail end of a long phasing out of coal as a primary energy souce in Europe.

A Shared Responsibility

Where does this bring us in terms of responsibilities? It is a shared responsibility. The focus has been on finance and investments, and we have an enormous responsibility. But being in ESG investing for more than ten years, I also believe we can not bear the brunt of a just energy transition alone. We are all stakeholders in this game. We as capital allocators have a clear role.

As capital allocators, we have a role in favouring the gradual transition. But we obviously as a society, and as consumers, have responsibility to move away from our fossil fuel addition.

We need to prioritize companies that are hugely exposed and should integrate and mitigate the negative social impact. And that's what we are doing by engaging with companies, in energy, utilities, consumer sectors – we engage for the benefit of employees, ask what is their policy for education, how do they adapt, what are the implications of your energy transition for your employees, and for all of society. Transparency - -make the environmental and the social risks clear.

As investors we can do a lot, and have already done a lot – the UN PRI, Climate Action 100+, the Montreal Carbon Pledge and carbon reporting -- but governments and regulators need to step in.

Our Credentials

Candriam has long-standing experience in Sustainable and Responsible Investing. As signatories to the UN PRI in 2006, our ESG journey started long before that, in 1996. In 2005 we internalized our research, and set up a large team fully devoted to ESG research, engagement, voting, and investments. Ever since, Candriam has helped shape the industry by educating, innovating, and bringing new sustainability ideas to the markets to offer our clients a broad range of not only more standard, but also bespoke ESG investment solutions in all liquid asset classes including emerging market debt and equity, and even high yield funds. Our name, Conviction AND Responsibility In Asset Management, nicely summarizes our DNA and what we as investors stand for at Candriam when we work on behalf of our clients and act as responsible stewards of capital.